I’m looking to loan a good friend’s small business ~20k at low interest to print his art book. I’m well aware of the risk that I lose the whole amount, the book doesn’t sell, etc. Any tips on contract templates for setting up a loan like this? I’m in California, he is in Michigan. I don’t want it to be a personal loan, it should be to his company. I have an estate lawyer but not a contract lawyer, and am guessing for this amount it isn’t worth paying a lawyer to write a customized contract.
If u do a business loan, require a personal guarantee. Also, make first money in goes to you
A loan is about the most garunteed way to lose friends and family. If you want to help someone you care about, give them money, or help them, but never loan them money.
That aside. Im very curious, how much does he get paid for his art already and why does he need $20,000?
Where is this money all going?
Use lawdepot.co.uk and draft a Loan agreement with a personal guarantee.
https://www.gonitro.com/pdf-templates/loan-agreement-template
That is a free link to a template I found.
I’m not a lawyer, but here are some suggestions for your contract:
Before you enter the contract, have him put his specific marketing plan in writing.
Make sure the plan provides a step by step process for marketing the book, including asking people to read it free and create reviews prior to release, book signings, sending free copies to art/book reviewers, distributing to art colleges and entering various competitions.
BookBub Partners Blog https://insights.bookbub.com › boo… 140 Book Marketing Ideas to Help Authors Increase Sales
Is good place to start.
I would consider a split between you and the author, where you get 60% of the proceeds until paid off, or whatever split makes it comfortable for you.
Consider a graduated payment program.
Just my thoughts. Bully for you supporting your people like that! Would love to review it!
Is his ‘business’ just this book?
Regardless, he should look at doing a pre-sale and/or a print to order option.
Kickstarter or Indiegogo could be huge.
If you still want to fund him look at funding PO’s or earmark specific draws.
If you do this without a contract then treat it as a gift.
Remember the majority of books fail to make any money.
Just some food for thought.
Banks require the borrower to pay cost of underwriting, bank’s legal fee, loan process fee, etc.
Make your friend pay for the cost of agreement.
If you’re a lawyer and understand the basics of contract law, you’re probably fine to use chatgpt to draw up a promissory note and a loan agreement and then review for sufficiency. Make sure you are lending to a legal entity and not the borrower personally or you could get into consumer finance regulated territory. A personal guarantee is fine and highly recommended. Ultimately, this loan is based on character/relationship and not how enforceable it is - if you go to foreclosure on this, there probably won’t be anything to seize and you’ll just get a judgment against the borrower. If there are any assets in the company, it might be worthwhile to file a UCC to secure the loan just in case. I might look at securing against any IP in case he tries to evade creditors and roll the IP into a new entity.